“How Do I Determine the Right Price to Charge?” The Beal Business Advisor

Jul 7, 2011 | Corporate Member News

Setting prices is not easy. Unfortunately many small businesses do not spend adequate time on setting their pricing.  As a result, most businesses under-price their goods and services. This can be a risky proposition – if your price is too low, you may invite consumer skepticism.  However, swing too far to the high side, and you will frighten away buyers. 

There is no single method to determine pricing; however when doing so one should consider sales volumes, competitor’s prices, and your competitive advantage. In product pricing, you need to know what your break-even point is and how to calculate it for every product or service you provide. Break-even is the key to determine whether you are making money or not.  It is vital for a start-up to know when you hit break-even volume. (See our February newsletter in our archives to learn about calculating break even)

What many businesses fail to do is factor into their pricing both variable and fixed costs.  Fixed costs do not change with varying quantities of sales, and include such items as management salaries, rent, taxes, telephone, utilities, equipment repairs and maintenance, and depreciation (often forgotten!).  Variable costs vary directly with production or sales, and include items like materials for manufacturing, wholesale costs for retail, transport/shipping, direct labour, or marketing (e.g., variable commissions). 

Once both fixed and variable costs per unit are known, a suitable mark-up (profit) is added, and will depend on: a) competitiveness of your industry; b) if your product is a luxury or necessity; and c) your amount and cost of capital.

Most small businesses don’t have a proper pricing system. Don’t be one of them. Once you understand your costs, you can use this information to improve profits.  You’ll know where you can selectively raise prices, where freebies can be eliminated (e.g. delivery), and price discrimination (e.g. advance or last minute airline bookings).  Most importantly, you’ll know where you make money.

For more information, contact us at 204-478-7266 x110.  

This article originally appeared in the July 2011 edition of The Beal Business Advisor. The issue also included:   

  • Buying a Business 
  • The Business Sales Process 
  • Quote of the Month 
  • Upcoming Seminars
  • Businesses for Sale 

Check it out here

About Beal Consultants, Business Growth Professionals

Focused Business Advisors
Beal Consultants helps people buy, sell, value, improve, and start businesses. We deliver value-added services in the following areas:

Grow Your Business
We can help make your business grow profitably using proven success strategies, step-by-step guidelines and an abundance of insight from our experience in working across a wide variety of industries.

Insightful Diagnostic Report

Are you ‘too close’ to your business? Are you working too hard in your business you have no time to work on it? Do you need a second perspective, a fresh pair of eyes?

Using a proven methodology, we can come in, interview you and your key staff, review your financial results against industry benchmarks, and make concrete recommendations on how to improve your business.

Improving your business means more profit for you, more free time and, eventually, more value when you exit. Call today for a free, no risk initial consultation.

Strategic Planning

Strategy planning is NOT about creating 50-page documents that are never referred to again. Strategic (and business) planning is all about understanding how your business can grow and thrive in a challenging, competitive business environment.

You are competing against many competitors, not just your direct competitors, but all your indirect competitors as well. You are vying for attention in an increasingly complex and crowded marketplace. You need to clearly understand – and you need to communicate to your clients – your key value proposition – why should they do business with you? Understanding your value proposition is key to differentiating yourself in today’s marketplace, and is key to having a sustainable competitive advantage. Your business strategy and business success relies on having a crystal clear understanding of your unique competitive advantage.

Find out more here.

About Beal Consultants – Business Brokers

Focused Business Advisors

Beal Consultants – Business Brokers helps people buy and sell businesses. We deliver value-added services in the following areas:

Buy a Business
We provide counsel, guidance and support throughout all steps of buying a business including: Search, Screening, Valuation, Negotiation, Due Diligence, Financing and Agreement Structuring.

Sell Your Business
We provide counsel, guidance and support throughout the process of selling a business. Some of the advantages of hiring an intermediary to sell your business include: confidentiality, creating and executing the marketing package, negotiation, and buyer screening.

Succession Planning/Exit Strategy
Looking to retire? Great! Is your business ready for you to retire? Can you afford to retire? Do you know how to minimize your tax burden when you are looking to sell or pass your business on to your children? We can help you understand the options that are available to you. Think it’s too early? The earlier you start, the more your business can be worth, and the more options you have to minimize taxes. If you’re thinking of getting out within five or less years, start planning today!

Business Valuation
Need to know what your business is worth? We help you determine the value of it and understand the key drivers of that value, so you can know how to improve it.

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